"To increase job creation, Congress must treat the disease, not manage the symptoms. Government hiring will not spur private investment -- it will crowd it out. Congress should instead promote private-sector investment and entrepreneurship -- which promote wealth creation."
- James Sherk, The Heritage Foundation
Do you remember the State of the Union address? Do you remember Obama promising to focus his priorities on job creation? Well, here we are two months later and it seems "jobs" is just a four-letter word he's required to say every once in a while, but in actuality, has taken very little focus at all.
The Heritage Foundation has a great article today discussing the basic causes of our high unemployment. Go with me here...this is important. Heritage is comparing data from the downturn in 2001 to our current recession and the results are very interesting.
Before you read below, remember unemployment is a result of two different things:
(1) Layoffs (businesses letting people go...this is mostly what the media focuses on)
(2) Decreased hiring (businesses not adding to their payroll)
Here are quotes directly from Heritage:
Job losses were worse [in 2001 recession] than now. Net employment has fallen more during the current recession because employers have created 7.3 million fewer new jobs than during the 2001 recession.
Decreased hiring is the most important factor driving unemployment up.
Lay offs have now returned to their pre-recessionary levels. Hiring has not.
The main reason why unemployment rises during economic downturns is that job creation falls while the labor force continues to grow, making new jobs harder to find. Those without work remain unemployed longer, driving up the unemployment rate.
Low hiring is primarily a symptom of America’s economic weakness, not its cause. Businesses did not suddenly decide to stop hiring. Rather, economic and political conditions changed in ways that discourage investment and entrepreneurship.
The large expansion of government is also contributing to the problem. The resources the government spends do not materialize out of thin air— they come from the economy. When the government increases spending, it crowds out the resources that business owners could have invested in their enterprises. Private investment falls sharply when government spending rises.
Many items on the congressional agenda—the gargantuan health care legislation...cap-and-trade regulations of CO2 emissions, and abolishing private ballots for union organizing—would significantly raise taxes and business costs. In addition, enormous increases in federal spending raise the prospects of yet higher taxes and rapidly rising inflation.
These combined factors have particularly affected small businesses...[who] have less room to absorb the cost of additional regulations or taxes. Unsurprisingly, then, small business hiring has dropped much more sharply than in the past. Small businesses now account for 35.8 percent of job losses in this downturn—triple the 2001 amount.
Heritage has a couple great charts within the article. I've cut and pasted this one because it shows MORE losses in 2001, but also MORE gains compared with today, thus a shorter and less devastating downturn. The political climate in '01 was such that the private sector was still adding jobs!
Heritage outlines a slew of options and suggestions to promote job creation, so check it out. But just remember...the government cannot SPEND it's way out of a recession. The private sector needs to start investing, spending and hiring, otherwise 10% unemployment is going to become the norm around here.
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